Key Points:
- Many credit unions operate with a small number of members and operate lean and close to the wire financially.
- Credit unions often borrow from other credit unions to help their members in times of need.
- BNPL schemes are becoming increasingly popular but can lead to debt and financial difficulties for users.
- Regulation of BNPL schemes is limited, leaving consumers vulnerable to high interest rates and fees.
- Fintech companies have a responsibility to protect consumers and help those who are struggling financially.
Article:
I have historically worked with very large banks. Happy new year, my tribe. Go out there and do good. Some of the largest banks in the world were my employers. The rest (or near enough) were my clients.
If I had a bingo card featuring every huge bank, ticking off the ones I have worked for or with, I would be winning. Exactly what I would be winning is a moot point, but the point I am trying to make is: I know big banks. I understand their challenges and I know their habits. What I hadn’t realised is how conditioned I have become to thinking of the world in sizes that suit those challenges and habits. Budgets. Costs. Employee base. Shares of wallet and market penetration. What success or failure looks like for those organisations is… big.
A few thousand or even tens of thousands of dollars here and there is a rounding error for these places. One that, from an accounting perspective, you need to log, but I recall my boss once determining that delayed interest claims of under a couple thousand dollars were not worth sending a collections team after. These were institutional clients making us millions elsewhere. The cost of the team ringing around to settle a missed interest payment of a few hundred bucks? Not worth it, he said. It was worth it to the collections team, incidentally. The team were all like, ‘If he doesn’t want the money, can I go after it and, if I get it, keep it? Because $2,000 is nothing to this bank, but it’s a lot to me, thank you very much.’ If you have worked with a big bank, you will recognise this.
And you will also understand what I mean when I say that, the first time I spoke to a credit union serving 500 members, my brain didn’t know what to do with that information. It had never occurred to me that, when we speak of community-centred service, we actually meant it to such an extent.
Credit unions are not all small, and if you live in Canada, the US or Ireland, you are used to credit unions that rival mid-sized banks in size and reach. They are still community-centred. They still service specific communities such as firemen or service personnel, police or nurses. Or local communities. And regardless of their size, they will most probably know your name when you walk in and ask after your parents or your child. And some of them, in the UK at least, can occasionally be very, very small. But no less effective for it.
So… you have 500 members… I asked the CEO of one such credit union trying to wrap my head around the mechanics of it… the mathematics of it, frankly.
500 members… that’s not a lot, considering that credit unions aren’t really deposit-takers from a balance sheet perspective. They take deposits, of course, that’s how you become a member. But they don’t give interest, and although you can get dividends (and do… so go join a credit union), they don’t work their balance sheet the way a traditional bank does. As a result, they operate lean and close to the wire pretty often.
So you have 500 members… and you
